Now that the hustle and bustle of holiday shopping season has calmed, merchants can sit back and breathe, right? Well, it really depends on how prepared merchants were – and are – for the influx of true and friendly fraud that happens every year.
Sales volume (and ecommerce sales, in particular) continues to hit historical highs, which brings with it an elevated amount of true fraud. While many merchants fortify their payment processing operation in anticipation of this effect, many are left wondering where all the chargebacks are coming from.
The Chargeback Problem Explained
It’s important to remember that true fraud isn’t the only enemy. It’s actually the “frenemy” of friendly fraud that merchants need to keep an eye on. As consumers start receiving their monthly billing statements, merchants will likely see an increase in chargebacks from friendly fraud. Consumers overspend and have buyer’s remorse, prompting them to dispute charges with their issuing bank. “Tis the Season” is replaced with customer carols of “I don’t remember purchasing this” or “I never received this shipment”.
In some cases, it’s an honest mistake. Over-enthusiastic holiday shoppers tend to lose track of all their purchases. In other cases, one look at the credit card bill is all it takes for customers to start telling tales to their bank. Unfortunately, it’s merchants who get stuck with the slap on the wrist in the form of costly chargebacks.
Now is the time when merchants will start to get a sense for the damage, though chargebacks may continue to roll in for the next several months. Each card network has its own time limitations for cardholders to take action, but in some cases, the cardholder has up to 180 days to dispute a charge. Once that action is initiated, it can take several more months for the chargeback cycle to roll through to completion. In any case, the merchant is often not made aware of a pending chargeback until it is too late.
In an ideal world, the customer contacts the merchant directly to dispute a charge. This provides the merchant with an opportunity to make things right (in cases where they may have delivered damaged or incomplete goods) or to try to reach a resolution agreeable for all parties. It bypasses the game of telephone between issuing bank, card network, acquiring bank, and merchant – saving time and resources for all involved. In reality, the merchant is last to find out and ends up with fees and penalties from the acquiring banks and processors. If the chargeback problem is serious, the merchant also faces penalties from the card networks. All in all, merchants end up paying about $2.40 for every dollar of fraud.
Christmas in July: Preserve Holiday Cheer — And Stop Chargebacks
Merchants do have recourse when it comes to chargebacks. Once a merchant receives notification of a chargeback from the acquiring bank, it can either fight the chargeback or not respond and allow the chargeback to stand.
Fighting requires the merchant to respond to the chargeback with compelling evidence (data related to the chargeback reason code under which the customer’s dispute falls). This may include:
- CVV Match
- Device Fingerprint
- Shipping Verification
- Geolocation Data
- Past Transaction History
- Email, Phone, or Chat Support Correspondence
For this reason, it’s important for merchants to have a solid internal process in place for locating this information, which is likely spread out across disparate sources. This data may need to be pulled from shopping cart platforms, payment processors, chat interfaces, support line recordings, fraud tools, and CRM.
Since the process of collecting this evidence can be time intensive, it may be beneficial for merchants to work with a chargeback specialist who can do the heavy lifting for them. This is especially true for merchants dealing with the post-holiday rush of returns, exchanges, and customer service issues.
Merchants should note that prevention is the preferred method for dealing with chargebacks. It cuts out the time-intensive work of fighting chargebacks and eliminates many of the accompanying fees that the merchant still pays, even when it wins a chargeback dispute.
The first step is having adequate fraud controls in place to guard against true fraud. This may include digital or device fingerprinting, geolocation, behavioral analytics, and manual review. But that still leaves the issue of friendly fraud, which can be harder to pinpoint
Adding chargeback alerts to the suite of fraud prevention tools can ensure that merchants are notified of chargebacks at the beginning of the process, allowing them to intercede and bypass the game of telephone. From there, the merchant can connect directly with the customer to resolve a dispute, eliminating costly fines and fees.
Chargebacks are the coal to a merchant’s stocking. Even the best-behaved merchants get one from time to time, but taking action to prevent unnecessary disputes can save tens of thousands of dollars. Merchants should work with their processing partner or payments advisor to integrate a customized suite of fraud prevention tools. A payments professional can help merchants map out the right combination of solutions to keep legitimate sales flowing while combating bad actors – and lumps of coal.